Islam and Economic Performance: Historical and Contemporary Links
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Journal of Economic Literature, vol. 56 (2018), in press. Islam and Economic Performance: Historical and Contemporary Links Timur Kuran* Abstract. This essay critically evaluates the analytic literature concerned with causal connections between Islam and economic performance. It focuses on works since 1997, when this literature was last surveyed. Among the findings are the following: Ramadan fasting by pregnant women harms prenatal development; Islamic charities mainly benefit the middle class; Islam affects educational outcomes less through Islamic schooling than through structural factors that handicap learning as a whole; Islamic finance hardly affects Muslim financial behavior; and low generalized trust depresses Muslim trade. The last feature reflects the Muslim world’s delay in transitioning from personal to impersonal exchange. The delay resulted from the persistent simplicity of the private enterprises formed under Islamic law. Weak property rights reinforced the private sector’s stagnation by driving capital out of commerce and into rigid waqfs. Waqfs limited economic development through their inflexibility and democratization by restraining the development of civil society. Parts of the Muslim world conquered by Arab armies are especially undemocratic, which suggests that early Islamic institutions, including slave-based armies, were particularly critical to the persistence of authoritarian patterns of governance. States have contributed themselves to the persistence of authoritarianism by treating Islam as an instrument of governance. As the world started to industrialize, non-Muslim subjects of Muslim-governed states pulled ahead of their Muslim neighbors by exercising the choice of law they enjoyed under Islamic law in favor of a Western legal system. JEL codes: N25, N45, O43, O53, P51, Z12 *Department of Economics, 419 Chapel Drive, Duke University, Durham, NC 27708-0097, USA. Email: [email protected]. Phone: (919) 660-1872. Editor Steven Durlauf and four reviewers of the Journal of Economic Literature made valuable suggestions. Dean Dulay and Diego Romero provided excellent research assistance. At the final stage, Cihan Artunç, Lisa Blaydes, Jean- Philippe Platteau, and Jared Rubin provided feedback that led to refinements. For financial support I am grateful to the Religious Freedom Project of the Berkley Center for Religion, Peace and World Affairs at Georgetown University and to the College of Administrative Sciences and Economics at Koç University. 0 1. Introduction Ever since the economic rise of the West, the question of whether non-Western religions are ill- suited to economic efficiency and growth has attracted academic scrutiny. Special attention has been paid to the economic effects of Islam, the world’s second largest religion after Christianity. Many negative claims are found in scholarly works. One reads, for instance, that Islam instills in its adherents beliefs harmful to economic advancement. It is said also that Islam discourages human capital formation, limits experimentation and innovation, promotes hostility to commerce, and distorts markets by facilitating authoritarian governance. A very common view is that Islam’s financial rules are incompatible with modern economic life. These are huge generalizations. The world’s Muslim-majority countries are spread across three continents, and substantial Muslim minorities exist in other parts of the world. Surely the practice of Islam varies geographically, depending on local circumstances and influences. The promoters of the generalizations are certainly aware of the variations. They know, for instance, that the world’s top-notch scientists include Muslims. But exceptions alone do not invalidate a generalization. In scholarship, as opposed to polemical literatures of no concern here, a generalization’s validity depends on the existence of an identifiable social mechanism that explains a common pattern. The question of whether Islam affects economic performance is important for several reasons. Muslim-majority countries are appreciably poorer than the world’s economically advanced countries, even the rest of the world. The average per capita income at purchasing power parity of the 57-member Organization of Islamic Cooperation was $10,015 in 2014; it was $17,500 for the world’s remaining countries, and (excepting its one Muslim-majority member) $42,216 for the OECD, the club of economically advanced countries. Muslim-majority countries lag also in terms of other basic indices of economic performance, such as life expectancy and adult literacy (Table 1). Within particular regions, too, Muslim-majority countries lag behind those where Muslims are outnumbered. The Balkans, non-Arab Africa, and the Indian subcontinent offer cases in point. Yet, the world’s poor countries include many that are overwhelmingly non-Muslim. That alone calls for care in attributing any economic outcome, whether favorable or unfavorable, to religion. Another reason is that within multi-religious countries with a substantial Muslim share Muslims tend to be relatively poor. Moreover, this underperformance is observed regardless of whether Muslims are in the majority or minority. 1 Understanding the sources of the Muslim world’s poor economic performance is not merely of academic interest. There are pressing policy reasons to explore both aggregate patterns and variations among specific Muslim communities. Persistent inter-group differences sow resentment, open conflict, even violence. The inequalities captured in Table 1 feed the violent strains of Islam that make headlines regularly. Although economic inequalities are not the only source of violence carried out in the name of Islam, perhaps not even the main factor, at the very least they create sympathetic constituencies and supply reservoirs of potential recruits. Until the late 1990s, an overwhelming share of the commentary on the links between Islam and economic performance belonged to non-economists. Much of the relevant scholarship was based on religious texts, principally the Quran, Islam’s holy book. Some scholars invoked ethnographically identified norms and beliefs, such as fatalism and conservatism. Researchers paid scant attention to incentives, equilibria, or social mechanisms. In explaining observed patterns, they did not account for the individual motives that enabled collective action. Insofar as they identified variations across space or time, they did not use these to test hypotheses or generate theoretical clues. In the first comprehensive literature survey on Islam and economic development (Kuran 1997), three-fifths of the references were to works produced outside the economics discipline, without using economic techniques of analysis. A few were to works produced in the late 19th century, which is when Muslim economic backwardness became a pervasive pattern and attributing the underperformance to Islam turned into conventional wisdom among the world’s elites. The 1997 survey references the most influential works. A few economists, notably Adelman and Morris (1973), had used opinion surveys to explore how religion shapes the modernization of economic attitudes. But the leading Middle East economic historians of the era, Issawi (1982) and Owen (1981), practically ignored religion. Issawi stressed that in the 18th and 19th centuries Christian and Jewish minorities served as the Middle East’s engine of growth. They were quicker to adopt Western lifestyles and learn Western languages, he observed. But he did not explore whether differences among religions, or among religious institutions, contributed to the observed cross-faith differences. 2 Table 1. Population-weighted Comparative Indicators of Economic Performance (2014) Human Gross Life Adult Develop- Domestic Region, Country, or Population expectancy literacy ment Product Country Grouping (millions) at birth rate Index Per Capita (years) (%)a (0-1) (US$, PPP)b Afghanistan 31 0.47 60.4 38.2 1,934 Arab Leaguec 378 0.66 70.5 77.9 17,428 ASEAN, Muslim-maj.d 283 0.69 69.5 95.4 12,809 Balkans, Muslim-maj.e 9 0.73 75.8 98.1 10,636 Bangladesh 159 0.57 71.6 61.5 3,332 Ex-USSR, Muslim-maj.f 75 0.70 69.0 99.8 12,099 Iran 79 0.76 75.4 84.6 17,365 Non-Arab Africa, Muslim-maj.g 96 0.39 55.8 54.8 3,604 Pakistan 185 0.54 66.2 55.6 5,041 Turkey 76 0.76 75.3 95.4 19,618 OICh 1,678 0.61 66.5 73.3 10,015 World 7,347 0.71 71.4 85.2 15,740 Non-OIC 5,669 0.74 72.8 88.9 17,500 ASEAN, Muslim-min.i 274 0.64 70.6 93.8 8,417 Balkans, Muslim-min.j 59 0.81 76.3 98.0 20,693 China 1,371 0.73 75.8 95.1 14,238 Ex-USSR, Muslim-min.k 71 0.76 71.8 99.7 10,832 India 1,311 0.61 68.0 69.3 6,088 Latin Americal 633 0.75 75.0 92.6 15,581 Non-Arab Africa, Muslim-min.m 859 0.52 58.7 65.3 3,907 OECD (except Turkey)n 1,204 0.88 80.8 99.8 42,216 Russia 143 0.80 70.1 99.7 24,451 Notes: a Individuals above 15 years of age. For some countries, the latest available figures are from before 2014. b GDP is measured at purchasing power parity in 2015 dollars. Except for Iran, data are for 2015. c As of 2016, the Arab League had 22 members, including temporarily suspended Syria. d Brunei, Indonesia, and Malaysia. e Albania, Bosnia and Herzegovina, and Kosovo. Kosovo is included only in life expectancy and GDP calculations. f Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. Prior to 1991, all belonged to the Union of Soviet Socialist Republics. g African Union’s 15 Muslim-majority members that do not belong to Arab League. h Organization of Islamic Cooperation has 57 members, including all 22 members of the Arab League. i Cambodia, Lao PDR, Myanmar, Philippines, Singapore, Thailand, Vietnam. j Bulgaria, Croatia, Greece, Macedonia, Montenegro, Romania, Slovenia, Serbia. k Armenia, Belarus, Estonia, Georgia, Latvia, Lithuania, Moldova, Ukraine. l Includes the Caribbean. m African Union’s 33 members with a Muslim minority.